Explicit Finance Ltd Upgraded to Sell on Technical Improvements Despite Weak Fundamentals

Quality Assessment: Weak Fundamentals Persist

Explicit Finance continues to exhibit weak long-term fundamental strength, with its latest quarterly results for Q2 FY25-26 showing flat financial performance. The company reported operating losses, with PBDIT at a low of ₹-0.10 crore and PBT less other income at ₹-0.11 crore, signalling ongoing operational challenges. Cash and cash equivalents have dwindled to ₹0.41 crore, the lowest in recent periods, raising concerns about liquidity.

Moreover, the company’s operating profit has declined at an annualised rate of -15.93%, underscoring poor growth prospects. Return on equity (ROE) stands at a mere 0.5%, reflecting minimal profitability relative to shareholder equity. These factors contribute to a weak quality grade, reinforcing the rationale behind the previous Strong Sell rating.

Valuation: Expensive Despite Underperformance

Explicit Finance’s valuation remains expensive relative to its peers, trading at a price-to-book (P/B) ratio of 0.9. While this may appear modest, it is a premium compared to the average historical valuations within the diversified commercial services sector. This premium is difficult to justify given the company’s deteriorating profitability and flat financial results.

Over the past year, the stock has generated a negative return of -7.30%, underperforming the broader market benchmark BSE500, which delivered 9.89% returns over the same period. This underperformance, coupled with declining profits (-8% year-on-year), suggests that the current valuation does not reflect the company’s financial realities, maintaining pressure on the stock’s investment appeal.

Financial Trend: Flat to Negative Performance

The financial trend for Explicit Finance remains subdued. The company’s quarterly results have been flat, with no significant improvement in profitability or cash flow generation. Operating losses persist, and the company’s cash reserves are at a concerning low level. This stagnation is reflected in the annualised decline in operating profit and the negative returns generated over the past year.

Longer-term returns tell a mixed story. While the stock has delivered impressive gains over five years (429.80%) and three years (82.65%), these returns are heavily skewed by earlier performance. In contrast, the last year and year-to-date periods show sharp declines of -7.30% and -41.99% respectively, highlighting recent weakness. The 10-year return of 17.65% also lags the Sensex’s 236.52% over the same period, indicating underperformance against the broader market.

Technical Analysis: Mildly Bullish Shift Spurs Upgrade

The primary catalyst for the upgrade from Strong Sell to Sell is a shift in technical indicators, signalling a mild improvement in market sentiment. The technical trend has moved from sideways to mildly bullish, supported by several key metrics:

• Moving Averages (Daily): Now mildly bullish, suggesting short-term upward momentum.


• MACD: Weekly remains mildly bearish, but monthly readings have turned bullish, indicating potential longer-term strength.


• KST Indicator: Weekly mildly bearish but monthly bullish, reinforcing mixed but improving momentum.


• Dow Theory: Weekly shows no clear trend, while monthly is mildly bearish, reflecting some uncertainty.


• Bollinger Bands: Bearish on both weekly and monthly charts, indicating volatility and downward pressure remain.

Despite these mixed signals, the mild bullish tilt in daily moving averages and monthly momentum indicators has been sufficient to improve the technical grade, prompting the upgrade in the overall Mojo Grade to Sell from Strong Sell. However, the stock price remains under pressure, closing at ₹8.00 on 29 Jan 2026, down 4.99% on the day and well below its 52-week high of ₹15.94.

Shareholding and Market Context

Explicit Finance’s majority shareholders are non-institutional, which may contribute to lower liquidity and higher volatility. The stock’s recent performance has lagged the Sensex and BSE500 indices significantly, with one-month and year-to-date returns of -33.00% and -41.99% respectively, compared to the Sensex’s modest positive returns over the same periods.

This underperformance, combined with weak fundamentals and expensive valuation, suggests that investors remain cautious despite the technical improvement. The upgrade to Sell reflects a recognition of the mild positive shift in technicals but does not yet signal a fundamental turnaround.

Outlook and Investor Considerations

While the technical indicators suggest a mild bullish momentum, the fundamental backdrop for Explicit Finance remains challenging. Investors should weigh the ongoing operating losses, weak cash position, and expensive valuation against the modest improvement in technical signals. The stock’s underperformance relative to the broader market indices over the past year and year-to-date periods further emphasises the risks involved.

Given the current Mojo Score of 37.0 and a Sell grade, the stock may appeal to investors with a higher risk tolerance who are looking for a potential technical rebound. However, those prioritising strong fundamentals and growth prospects may prefer to explore alternatives within the diversified commercial services sector or broader market.

Explicit Finance’s upgrade from Strong Sell to Sell reflects a cautious optimism driven by technical factors, but the company’s financial and valuation challenges suggest that a full recovery remains uncertain in the near term.

Summary of Ratings and Scores

As of 28 Jan 2026, Explicit Finance Ltd holds the following ratings:

• Mojo Score: 37.0


• Mojo Grade: Sell (upgraded from Strong Sell)


• Market Cap Grade: 4


• Technical Trend: Mildly Bullish (up from sideways)


• Financial Trend: Flat to negative with operating losses


• Valuation: Expensive relative to peers (P/B 0.9)


• Quality Grade: Weak fundamentals with poor profitability and cash flow

These ratings are provided by MarketsMOJO, reflecting a comprehensive analysis of technical, fundamental, valuation, and quality parameters within the diversified commercial services sector.

Conclusion

Explicit Finance Ltd’s recent upgrade to a Sell rating highlights the importance of technical factors in shaping short-term market sentiment. However, the company’s weak financial performance, expensive valuation, and underwhelming returns relative to the market indices caution investors against expecting a swift turnaround. Monitoring upcoming quarterly results and any shifts in operational performance will be critical for reassessing the stock’s outlook in the coming months.

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